In 1998, NASA launched the Mars Climate Orbiter, a robotic space probe developed by the cash-strapped agency using a then recently adopted low-cost approach. It was built by a team at Lockheed Martin using U.S. units of measurement. Unfortunately, nobody told that to the Orbiter’s flight controllers at the Jet Propulsion Laboratory, who worked in metric. The resulting error in the unmanned spacecraft’s trajectory corresponded exactly to the discrepancy between the two units of measurement. Instead of coasting around Mars to look for signs of water and climate change, the Orbiter disintegrated when it slammed into the red planet’s atmosphere.

Beyond NASA’s embarrassment at losing US$327 million because of what the engineers involved called a “metric mix-up,” the episode contains a deeper lesson for corporate strategy. In 1992, when most of its funding and resources had been sunk into the International Space Station, NASA shifted its development of unmanned spacecraft away from the traditional (and expensive) large-scale-project management style and toward lower-cost initiatives. To do so, the agency adopted the “skunkworks” model pioneered by Lockheed Martin to accelerate jet building during World War II. This approach—which relies on small teams that work on tight deadlines, far removed from the restraining effects of corporate bureaucracy—now forms the backbone of the strategy at many companies, including Microsoft and Boeing.

But as a new study shows, after an initial period of success with the “faster, better, cheaper” philosophy, NASA’s inconsistent application of once-winning strategies resulted in a string of fiascos that caused the agency to revert to a big-budget mentality. And that’s a move that continues to haunt NASA, which now face additional funding cuts and limits on its expenditures. For companies considering a low-cost approach to innovation, the lesson is clear: Management should impose a consistent framework; must resist the hubristic urge to get carried away by early successes; and cannot stretch employees, resources, and projects too thin.

The author analyzed 31 low-cost NASA initiatives from 1992 to 2008, creating an index of their complexity based on the spacecraft’s cost, mass, technological intricacy, distance traveled, and mission objectives. He then performed a regression analysis that compared the predicted cost, based on mission complexity, to the actual cost of the project, along with analyzing other factors in the program’s failure or success.

The first round of low-cost programs—developed by small teams unburdened by piles of paperwork or stringent review procedures—included small satellite missions and a spacecraft that flew by the comet Borrelly. In this initial phase, the author writes, seven low-cost expeditions were successfully completed by small, well-integrated project teams. After gaining confidence from the first round of project successes, advocates of the low-cost strategy extended it to 14 more initiatives. But the management style shifted, and eight projects of those 14 were lost in space.

What changed? All but one of the first-round initiatives were conducted at a NASA field center, where the spacecraft was designed, built, and operated; contracted parts were integrated and tested in-house. But the failed second-round projects did not have a strong integration hub. Instead, NASA farmed out the projects and responsibility for different aspects of the mission to various contractors.

After adjusting for mission complexity, the author says that NASA executives also underfunded second-round projects “to a dangerous degree.” For example, NASA officials at the Jet Propulsion Laboratory completed the first-round Mars Pathfinder for $265 million, a bargain considering the price tag included the spacecraft, launch vehicle, and operations. In the wake of that success, NASA’s second round of projects included two Mars missions—for a combined cost of $329 million. With less money and a diffuse management team, both projects struggled. And both spacecraft crashed.

“Cumulatively, second round managers worked with less money, weaker cultures, and more divided centers of integration,” the author writes. “A project manager overseeing a second round project typically struggled with two of these three disadvantages. First round managers encountered practically none.”

What happened next, in the third round? Managers could have focused their efforts on overseeing the projects more carefully and consistently, while keeping budgets low, in line with strategies employed in the first round. But NASA took the opposite tack. Relative to the complexity of projects in the first and second rounds, NASA officials funded the next 10 projects in the low-cost stream at significantly higher levels, and invested two to three times more resources. Even the least complex missions carried higher price tags than they should have, according to the author. Although all 10 projects met their goals, the third round represented a retreat to more traditional project management methods—more money, less careful management.

But those methods aren’t sustainable, and the painful lessons of a misapplied corporate strategy have had long-term effects that can serve as a warning to other companies. The cost of the Mars Curiosity rover that landed in 2012 soared to $2.5 billion—taking it well outside the low-cost range. In turn, shortly after the Curiosity’s much-publicized landing, the agency’s overseers announced they would not fund another big-budget mission. Facing significant budget cuts and sustained public debate over the value of its expeditions, NASA knows that much of its future now depends on embracing a lower-cost approach and making it work—this time, for good.

Bottom Line:
NASA’s initial success with low-cost, team-based initiatives shows that even large organizations can innovate with trimmed budgets. But the agency’s inconsistent strategy led to catastrophic failures, underlining for companies that scaled-down innovative efforts depend on strong integration, a supportive culture, and a real commitment to the low-cost approach.

Articles published in strategy+business do not necessarily represent the views of PwC Strategy& Inc. or any other member firm of the PwC network. Reviews and mentions of publications, products, or services do not constitute endorsement or recommendation for purchase.